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2023 (1) TMI 1226 - ITAT MUMBAIIncome deemed to accrue or arise in India - amount received by the assessee on account of Time Charter of its ship as “royalty‟ and taxing the same u/s 9(1)(vi) - assessee is a company incorporated in and tax resident of UAE and is engaged in the business of shipping operation as entered into Time Charter contract with M/s Poompuhar Shipping Corp. Ltd. (PSCL) for transporting coal from Paradeep port to Tutucorine in Tamil Nadu, through its ship ‘MV Eastern View’ - whether the income earned by the assessee is to be taxed u/s 44B of the Act on the presumption basis as claimed by the assessee in the return of income; or whether the receipt should be taxed as ‘royalty’ for use of an equipment in terms of clause (iva) to Explanation 2 to section 9(1)(vi)? HELD THAT:- As payment was subject to load of the cargo and it was not simply for leasing or renting out the ship for the time charter period. Thus, from the reading of various clauses of the agreement, it cannot be inferred that it was purely fixed rental receipt by the assessee for lease of equipment. In fact all throughout the control of the equipment remained with the assessee and at no point of time owner has transferred the vessel to the charterer for carriage of goods. Albeit, the agreement envisages more of voyage charter by the vessel owner and therefore, in our opinion, the same cannot be fall strictly within the realm of definition provided of ‘royalty’ in terms sub clause (iva) to Explanation 2. The concept of dominance or control over ship by the charterer on the equipment is paramount in determining the character of payment as payment of ‘royalty’ and in absence of the same cannot be treated as royalty. This is also coupled of the fact that payment received by the owner from the charter is firstly, based on use of per running day; and secondly, calculation of dead freight was dependent upon the load per voyage. In such a situation, the payment received by the owner from the charterer has to be reckoned as payment from operations of carriage of goods from one port in India to another port in India, which falls under the ambit of carrying out shipping business or shipping operators. We find that this Tribunal in the case of Smit Singapore Pte Ltd. [2020 (11) TMI 415 - ITAT MUMBAI] similar charter agreement was under consideration by a foreign resident owning a ship who has given it on a time charter to an Indian company. Thus, in our view, the payment received by the assessee cannot be treated as ‘royalty’ u/s 9(1)(vi). Case of M/S. POOMPUHAR SHIPPING CORPORATION LTD. AND OTHERS VERSUS THE INCOME TAX OFFICER, INTERNATIONAL TAXATION II AND OTHERS [2013 (10) TMI 936 - MADRAS HIGH COURT] is not applicable on assessee. The payment received by the assessee from M/s Poompuhar Shipping Corp. Ltd. is not in the nature of ‘royalty’ and hence, the same is not taxable under section 9(1)(vi) of the Income Tax Act. Secondly, the agreement and the payment received by the assessee is for carriage of goods and for operating the ships, therefore the income of the assessee has rightly been offered to tax u/s 44B of the Act. Appeal filed by the assessee stands allowed.
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